If a project costs $50,000 and is expected to return $10,000 annually, how long does it take to recover the initial investment? What would be the discounted payback period at i=18%? Assume that the cash flows occur continuously throughout the year.
If a project costs $50,000 and is expected to return $10,000 annually, how long does it take to recover the initial investment? What would be the discounted payback period at i=18%? Assume that the cash flows occur continuously throughout the year.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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If a project costs $50,000 and is expected to return $10,000 annually, how long does it take to recover the initial investment? What would be the discounted payback period at i=18%? Assume that the cash flows occur continuously throughout the year.
Expert Solution
Introduction
Given that;
Cost of the project=$50,000
Expected return=$10,000
interest =18%
The payback period is the amount of time needed for an investor to break even or to recover the cost of their investment. Although more restrictive compensations are indicative of more interesting ventures, longer payback times are less tempting.
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